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Flipping of real estate is primarily used in the United States. It refers to a practice of purchasing a property below the market value, making the required improvements in it for e.g. repairs etc., and reselling it for a higher price (generally near market value), thus making a profit.

Though it sounds quite easy in real world, it is extremely cumbersome and risky. Flipping is the latest subset of the nothing-down movement. The salesperson makes flipping look as if the person concerned gets something for free. However in reality it is just a misconception.

Some experts believe that the practice of flipping started during the real estate bubble in the U.S. during 2004 -2005. Although the practice of flipping existed long before the real estate bubble, it became more rampant and popular in those years.

The process of flipping a home seems like a simple enough premise. Buy a home for a low value, add some value to it through various improvements and finally sell it for a handsome profit. However, that formula simply doesn't work every time and there are flips every year that become massive flops, some big enough to discourage those investors from getting back into the business. This is a bit of a shame given that a few failures are common in any profession, whether it be house flipping or not.  Read more.

Related Resources:

• Real Estate Flipping


• Property Investing


• Cash Flow


• Opportunity Cost

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I've included everything I could think of regarding Flipping. If there is anything we need to add, please make a suggestion.

Lastly, all proceeds from sales go to Save The Children, so buy, buy, buy!

Multiple investor flip: The underlying fact about this type of flip is that one investor purchases a property at below market value, sells it quickly to a second investor, who subsequently sells it to another party.

Fix and flip:  It is the most common flip which involves only one investor, who obtains the property at below market value (usually one in which the owner is forced to sell at below market value for other reasons, mainly the inability to make mortgage payments and needs to sell to avoid foreclosure), makes the necessary repairs, and sells the property at or nearer to market value, hoping to make profit (i.e. sales price is more than the purchase price plus costs of repair and financing).

For legalizing flipping, in the year 2006, the Department of Housing and Urban Development created regulations regarding predatory flipping within Federal Housing Authority (FHA) single-family mortgage insurance. The time required for owning a property is more than 90 days between purchase and sale dates to qualify for FHA-insured mortgage financing.  In 2007 Fannie May made regulations regarding "flipping" properties in a fraudulent manner.

Inspire of being regulated, flipping is also used as a criminal scheme. Illegal property flipping is a fraud for profit scheme whereby a property bought is resold in a short span of time by making only fabricated changes at exorbitant value. The high price is charged on account of repairs, which are only cosmetic. Illegal property flipping sometimes involves collusion between a real estate appraiser, a mortgage originator and a closing agent. The cooperation of a real estate appraiser is important since a false and artificially inflated appraisal report is required and the buyer (ultimate borrower) may or may not be aware of the situation. Because the loss is always large, this type of fraud is one of the most costly for lenders. To detect illegal flipping schemes in the United States, the USPAP (Uniform standards of professional appraisal practice) has been formed.

Pros:

1. Newly remodeled homes improve the standard of living.

2. Higher property tax proves beneficial to the Govt.

Cons:

1. Can lead to gentrification of older communities.

2. Causes imbalance in the economy by bringing influx of property with absence of corresponding buyers.

Although most arguments surrounding flipping tend to be negative, it is also possible to identify some benefits from the practice as well. For example, "rational" flipping can encourage a rejuvenation and restoration of a previously decrepit neighborhood. (Under the broken windows theory, an unkept house/area attracts a criminal element, which drives out those making a responsible living, which allows for more criminal element, and so on in a vicious downward cycle.) The restoration creates jobs, particularly in construction, for locals and generates more sales (and sales taxes) to local vendors (initially those involved in selling construction materials). The newly remodelled homes will then attract new populations and businesses to a region, encouraging more economic development, plus the remodelled homes' higher assessed values brings more property tax revenues to local governments, allowing for more improvements to the area and driving out the criminal element. Even on a single home basis, flipping can have positive impacts (the house itself will be in better condition and last longer, and can be sold at a higher price, thus increasing its property tax assessed value, plus increased sales for goods and services related to property improvement and the related increase in sales taxes). For more, see Wikipedia, Flipping.

Tri City Wa Real Estate | Washington Real Estate News

Some of this work is licensed under a Creative Commons License. All original work, design, and imagery is Copyright (c) 2007 The Lane Real Estate Team.

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